Current Ratio

What is Current Ratio?

Current ratio is a metric that makes it easier for businesses to understand their ability to deal with short-term liabilities. Use the following formula to calculate current ratio:

Current ratio = current assets/current liabilities

In this formula, “current assets” should include accounts receivable, and “current liabilities” should include both accrued expenses and accounts payable.

If your company has a current ratio between 1.5 and 2.5, it should have good liquidity. For example, a current ratio of 1.5 means your business has $1.50 for every dollar in current liabilities.

Related terms

Days Payable Outstanding (DPO)

Days Payable Outstanding (DPO) is a financial metric that measures the average number of days a company takes to settle its bills with suppliers or creditors for purchases made on credit. In simpler terms, it tells you how long, on average, a company takes to pay off its outstanding accounts payable (AP).

Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) is a financial metric used to measure the average number of days it takes a company to collect cash from its customers after a sale is made on credit. In simpler terms, it tells you how long, on average, it takes for your company to convert credit sales into actual cash.

E-invoice

An e-invoice is created, sent, received, and processed electronically, often through standardized formats like XML or EDI (Electronic Data Interchange).

EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It's a financial metric used to assess a company's profitability from its core operations.

Expansion Revenue

Expansion revenue refers to the additional revenue generated by your existing customers. It represents the growth in their spending beyond their initial purchase or contracted amount. In simpler terms, it's the money you earn from your customers when they buy more, upgrade their plans, or add new features and services.

Expense Report

An expense report is a document used by individuals or employees to record and report business-related expenses incurred during the course of their work.